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This is why we can’t have nice things
Thursday, Oct 3, 2019 - Posted by Rich Miller * The Tribune reports today that the unfunded liability for Chicago’s pension funds has risen by almost $7 billion since the city raised taxes by over $800 million to pay down the debt. The reason basically boils down to changed investment and payout assumptions, kicking the can and bad investing…
The changed assumptions part is, as noted, the largest share and was necessary to better align the systems with reality. Kicking the can is, unfortunately, this state’s most popular sport. It’s like paying the minimum monthly balance on your credit card while continuing to spend more money. But that’s still better than what Mayor Daley did, which was pay pretty much nothing. And if you want another reason why the other municipalities don’t want to include Chicago in a statewide merger of the hundreds of local first responder pension funds, just look at those investment returns. * Speaking of those local Downstate and suburban first responder funds, Mark Maxwell went to their annual training conference at a posh Wisconsin venue…
And that $8 million doesn’t include other reimbursable travel expenses and compensated time off work.
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- Blue Dog Dem - Thursday, Oct 3, 19 @ 1:15 pm:
And just think. Equity under both the Obama and Trump years have been phenominal. Folks we are in deep doodoo.
- Demoralized - Thursday, Oct 3, 19 @ 1:16 pm:
And we couldn’t get them trained in Illinois why? So not only did we spend $8 million we spent it outside of Illinois. Double brilliant.
- Blue Dog Dem - Thursday, Oct 3, 19 @ 1:16 pm:
Equities
..
- NoGifts - Thursday, Oct 3, 19 @ 1:17 pm:
$2700 each?
- SSL - Thursday, Oct 3, 19 @ 1:22 pm:
The headline says it all on this one.
- Henry Francis - Thursday, Oct 3, 19 @ 1:24 pm:
I thought the Daley kid was no longer investing pension dough? And they still got those crummy returns?
Somebody should get Bruce Rauner off the couch and back to earning double digit returns for the funds again. He owes us that much at least.
- Michelle Flaherty - Thursday, Oct 3, 19 @ 1:32 pm:
For a moment, I thought Mark was moonlighting as a valet.
- A Jack - Thursday, Oct 3, 19 @ 1:32 pm:
Those returns are pathetic. They could have just stuck the money in the bank with 1/10 percent interest and done better. Even long term federal bonds are earning a few percent.
- What? - Thursday, Oct 3, 19 @ 1:37 pm:
Hope returns are up 20% for this year!
- Anonymous - Thursday, Oct 3, 19 @ 1:38 pm:
How does the reporter calculate $8 million?
- 62656 - Thursday, Oct 3, 19 @ 1:38 pm:
Has anyone examined long term returns of these funds compared to if they had put the money into index funds?
- Lucky Pierre - Thursday, Oct 3, 19 @ 1:43 pm:
Speaker Madigan had it right before he buried his head in the sand for four years while there was a Republican Governor.
The pensions in Illinois are unsustainable, but beating Republicans through obfuscation and deceit was more important to him than helping to solve the fiscal crisis in Illinois.
Rahm was able to identify the problem with the 3% compounded COLA after he was not running for reelection.
Give Lori Lightfoot credit for recognizing the biggest reason for the problem. Why are all of the other Democrats so obtuse?
Why on earth is JB is held captive by public sector unions?
He is the one Democrat in the state who doesn’t need their money.
- Anyone Remember - Thursday, Oct 3, 19 @ 1:55 pm:
“Just take the handcuffs off!” Isn’t that what Reagan did with the S&Ls, letting residential mortgage specialists invest in commercial real estate? IMRF doesn’t need the handcuffs as they have full time professional experts. Police & Fire pension funds don’t (one reason there was no ability to produce Pension Impact Notes when benefits were enhanced after 9/11). Taking the handcuffs off without providing expertise will make this look like the good old days … .
- cover - Thursday, Oct 3, 19 @ 1:55 pm:
= Rahm was able to identify the problem with the 3% compounded COLA after he was not running for reelection. =
Even if the General Assembly could somehow pass a bill to reduce those COLAs (very unlikely), there’s a 7-0 decision from the Illinois Supreme Court waiting to overturn it.
I like to give people the benefit of the doubt, if they are truly willing to learn. After being told this many times, Lucky Pierre seems to me to be another version of Donald Trump - no amount of facts or reason will ever change his mind.
- Rudiforte - Thursday, Oct 3, 19 @ 1:56 pm:
Wait, they lost money last year? Whoever is running the fund should be let go.
- My Button is Broke... - Thursday, Oct 3, 19 @ 2:06 pm:
Good analogy with the credit card but I would tweak it slightly. It’s like paying less than your minimum monthly credit card bill and still charging stuff on it and assuming you’re going to have more money to make up for the small payments in like 5 years. Your minimum credit card payment covers all the interest you accrued plus a little principal. The current employer payment isn’t enough to cover the interest, let alone benefits earned during the year.
- City Zen - Thursday, Oct 3, 19 @ 2:10 pm:
Wisconsin’s state pension plans are 99% funded.
- Motambe - Thursday, Oct 3, 19 @ 2:11 pm:
How sad that Illinois has no hotels or convention facilities where the pension fund managers, board members, etc., could meet and spend their travel expense money IN ILLINOIS, generating tax dollars in at least one local municipality. Heaven forbid spending any money where it might support one or several of these pension funds. Sheeesh!
- Oswego Willy - Thursday, Oct 3, 19 @ 2:15 pm:
- City Zen -
Forbes…
===The much larger piece of the explanation, though, is this: Wisconsin’s public pension system, unique among not just public pensions but among any defined benefit pension in the United States, is designed to share risks between participants and the state, through two key mechanisms.
First, the contribution each year is recalculated as needed to keep the plan properly funded, and that contribution equally split between workers and the state.
Second, unlike Illinois’ retirees, who are guaranteed a 3% benefit increase each year, no matter what, Wisconsin’s cost-of-living adjustments are dependent on favorable investment returns, and, far more crucially, retirees’ benefits are similarly reduced in down years. The gains and losses are smoothed on a five-year basis to reduce the impact any given year, but, despite fears by many retirement experts that, when it comes down to it, plan administrators would chicken out on benefit reductions, in Wisconsin, these benefit reductions really have been applied just as consistently as the benefit increases. What’s more, the adjustments take into account not just investment returns but also mortality improvements and other plan experience/assumption impacts.===
- Evanston - Thursday, Oct 3, 19 @ 2:21 pm:
- cover - Thursday, Oct 3, 19 @ 1:55 pm:
Sounds more like you then the President. This has nothing to do with President Trump.
- NeverPoliticallyCorrect - Thursday, Oct 3, 19 @ 2:57 pm:
Again, please tell me how this is all Rauner’s fault? Or are we finally going to admit the Dems have run this state into the financial blackhole that threatens to ruin this state.
- Homer Simpson's Brain - Thursday, Oct 3, 19 @ 3:02 pm:
I agree with Rudiforte. Fire the whole lot of them.
We should merge public pensions together. I know that there are reservations, but as a state we can save a lot of money that is better spent elsewhere.
On a related, and unpopular, note, Illinois should tax Illinois pensions. Especially some of the more extravagant pensions. We also need ask Congress to repeal or have declared unconstitutional federal law that does not allow Illinois and other states to tax out of state pensioners.
- Oswego Willy - Thursday, Oct 3, 19 @ 3:03 pm:
===Again, please tell me how this is all Rauner’s fault?===
For the 8,739th time. Do yourself a solid, maybe cut and paste it for yourself. Ugh.
Read McKinney, Rich Miller, Vock.
Once you do that, and you get the history, realize the exacerbation caused by Rauner refusing for a whole General Assembly, no budget.
Look at the purposeful debt that ensued. Look at the backlog in that debt and the interest to it.
The same folks with the same “explain to me… “
We have. Countless times, over and over.
You don’t like the answer.
“I’m frustrated too but taking steps to reform Illinois is more important than a short term budget stalemate.”
Rauner purposely made it worse.
By nearly every measure Illinois was worse off with Governor Bruce Rauner. Crain’s wrote that.
Once you read McKinney, Rich Miller, and Vock, then respond.
- Oswego Willy - Thursday, Oct 3, 19 @ 3:04 pm:
===Illinois should tax Illinois pensions.===
30/36, 60/71, and a governor willing to sign.
It not that it’s unpopular, try to pass it.
- Truthteller - Thursday, Oct 3, 19 @ 3:07 pm:
Property taxes sky high because Illinois has the most taxing districts in the US, with redundancy of services, zero need to have 667 separate police and fire pension funds and managers and staff and overhead. Another example of mini kingdoms and elected officials in Springfield not doing their jobs.
- Champs - Thursday, Oct 3, 19 @ 3:13 pm:
Good to see Maxwell got a trip to Geneva out of it.
- A Watcher - Thursday, Oct 3, 19 @ 3:14 pm:
This is not shocking. Look at the various State retirement funds — the largest reason for growth in the unfunded liability is changes in assumptions. Everyone screams “Had they just funded timely there would be no shortfall.” This article demonstrates the lack of true understanding of the tremendous impact of risk in these plans (meaning impact from outside forces). The plans need to be funded because that’s what we have to do. Growth in the liability can occur despite the best managed fund. That is brutal to deal with in long term governmental planning.
- Sue - Thursday, Oct 3, 19 @ 3:35 pm:
OW- you are a broken record with respect to Rauner. Bruce Rauner did not adversely impact any of the 5 State Zpension Systems during his term of office. Nor did he impact the municipal plans. During his 4 years all 4 years all payments were made as required. Pensions in Illinois are in horrible shape for several reasons(1) insufficient contributions from time immemorial;(2)- at least for the past 10 years- below average investment returns as compared to other state systems; (3) routine early retirement incentives never paid for; -and (4) inept management with the exception of IMRF. At the State Board - it’s been a patronage problem along with IMO a fair amount of ineptitude and we all are aware of TRS issues - But please stop claiming Rauner has anything to do with the pension mess. It predates him by decades and nothing he did made it any worse
- Oswego Willy - Thursday, Oct 3, 19 @ 3:37 pm:
- Sue -
Did Rauner pay school district and munis their money and on time?
How did that go without a budget for a whole General Assembly?
I’ll wait, thanks.
- Rampin' It Up - Thursday, Oct 3, 19 @ 3:42 pm:
==Second, Emanuel’s plan put off the largest increases in pension contributions to get the system back on track until after he left office.==
Maybe the City should just put off payments to 2050 and have a massive ramp start then? The descendants of pensioners will be very well paid…what a mess. Not sure why we don’t do a constitutional amendment disallowing pension holidays and ramps that pawn debt off on future generations?
- Rudiforte - Thursday, Oct 3, 19 @ 3:43 pm:
Sue, I agree. Rauner had little to nothing to do with the pension mess in Illinois. Decades of Madigan, Edgar, Blavogich, Thomson, Fullerton though?
- Oswego Willy - Thursday, Oct 3, 19 @ 3:49 pm:
Pat Quinn never missed a pension payment.
- Shemp - Thursday, Oct 3, 19 @ 4:00 pm:
Governors have nothing to do with municipal pension funds. You can’t credit Quinn anymore than you can blame Rauner. Everyone in the GA deserves fault for leaving cities as small as 5,001 people to manage individual pension plans.
Worst part of this training, it’s retread from last year, but pension board members have to do training as part of required continued learning. That said, there are alternatives to going to Lake Geneva, but when you can get a free trip there….
- The Original Name/Nickname/Anon - Thursday, Oct 3, 19 @ 4:10 pm:
Every Fund with YE 12/31/18 lost money that fiscal year.
==Rahm was able to identify the problem with the 3% compounded COLA after he was not running for reelection.==
In 2014 or 2015 had legislation passed that REDUCED the COLA, it was overturned by the ILSC. Everyone knows that problem exists.
- The Original Name/Nickname/Anon - Thursday, Oct 3, 19 @ 4:18 pm:
IMRF lost 4.4% in 2018, MEABF lost 4.9%, the investments are not the problem, IMRF gets paid the correct contributions and MEABF does not.
https://www.imrf.org/en/publications-and-archive/2018-pafr
https://www.meabf.org/assets/pdfs/pubs/MEABF_Comprehensive_Annual_Financial_Report_for_the_Fiscal_Years_ended_December_31_2018_and_2017.pdf
- Ed Equity - Thursday, Oct 3, 19 @ 4:57 pm:
Move a multi-blue state, national campaign forward, which requires interstate commerce laws, ultimately allowing taxation of pensions for individuals that move out of state.
Such a move is politically possible and can make the first step forward toward the structural reform needed to fix an unfixable mess created by public sector unions.
We should all learn from the fully funded pensions that unions like IUOE 150 have for their members. Perhaps as engineers, they learned math better than others.
- revvedup - Thursday, Oct 3, 19 @ 5:58 pm:
IMRF pensions are not funded by the State; it’s an employer/employee funded system. IMRF gets an operating budget only.
- John Q - Thursday, Oct 3, 19 @ 8:16 pm:
A.Police pensions in Chicago don’t get compounded interest.
B. I wonder if the returns would be better if the Funds werent forced to use certain managers based on “qualifications” other than if they are good at managing money.
The city passed the rules that limit the funds returns, the city didnt pay the funds the monies owed.
Chicago should be forced to come up with the cash.
- Last Bull Moose - Thursday, Oct 3, 19 @ 9:22 pm:
If the pension funds lose money in a bull market, maybe the State should go to a pay as due system. If the pensions were fully funded, they would have lost even more money.
- Rudiforte - Thursday, Oct 3, 19 @ 11:33 pm:
Bull Moose, better yet. Just get out of defined benefit systems.